5 Tips to Pay Off Your Mortgage Faster
Owning your own home outright is part of the American dream—but it doesn't happen overnight. Research shows 80–90% of homebuyers choose a 30-year mortgage; a long stretch of time, during which a sizable amount of interest accumulates. The good news: you can pay it down faster, build equity and minimize interest on your loan.
Start by using a mortgage calculator to figure out exactly how much you owe and how much interest you'll pay. Then, follow these quick tips:
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Make an extra payment every year, or each quarter
You've already budgeted a monthly or biweekly payment—plan to make an extra payment every year to reduce your mortgage plan by four or five years. For those feeling extra thrifty and ambitious, make an additional payment every four months and shave 10 or more years off your payment plan. The earlier you start making additional payments, the better. Keep the payments in a savings account, or one you don't normally dip into, so you won't be tempted to spend it elsewhere. One thing to keep in mind: check with your mortgage company. Some allow additional payments only at certain times of the year and some will penalize you for paying your mortgage off early. -
Refinance to a shorter mortgage
One way to pay off your mortgage faster is to refinance into a shorter term. Doing this could help you save five or more years off your payment and tens of thousands of dollars in the long run. You'll have higher payments each month and will likely owe closing costs, however, so plan ahead by saving for a few years or waiting for a raise. One rule to keep in mind when refinancing: unless the new interest rate is lower than the old rate, it probably won’t be beneficial. -
Find extra money in your home
If you're looking for extra income, check your own home. Decluttering could increase space and decrease your mortgage in a matter of days. Look in your garage, closet and kitchen for unused items that would sell online or in a garage sale. You can even make it a friendly competition between family members to see who can sell the most. Use your profits to make one extra payment this year, and repeat as needed. -
Round up
You'd be surprised how quickly dollars and cents can add up over the years. Consider these options: Up your monthly payment by one-twelfth. This may seem like a small increase, but in the end, you'll make one extra payment each year and save tens of thousands of dollars in interest. Or, round each biweekly or monthly payment to the nearest whole number. For example, mortgage payments are generally odd numbers, i.e. $1,738.81 a month. Round that up to $1,750—or even $2,000—depending on your budget, and watch your mortgage balance get lower each month. -
Put any unplanned income into your home
Finally, contribute additional or unexpected income into your mortgage. While it may be tempting to take that bonus check or holiday money to the mall or try a new restaurant downtown, a few extra deposits can really make a difference on your mortgage—no matter how big or small. Just don't put so much toward home payments that you can't meet other monthly expenses.
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